x

Loading data...

There will not be a big hiccup and it will be a continuation of this bull market after a pause, said Vipul Prasad,
Founder & CEO, Magadh Capital, in an interview with ETNOW.

Edited excerpts:

Why do you say that one should not get carried away by the run up? Is that an indication that now we will be putting the brakes on the rally?

I would not say that we are going to see a big hiccup in this rally or maybe I am not even saying that in the near term we will necessarily see a correction. What we are seeing is that this March rebound in the market has largely been driven by a re-rating of the PE multiples which in turn has been driven by ample liquidity, rather sharp improvement in liquidity and also increased expectations around political continuity post the elections.

To me it looks like a more broad-based and fundamentally driven rally, on the back of earnings revival that has long been overdue and which has proved elusive for the last three-four years. The question is – are we going to see the same trend of continuing disappointment on earnings? I suspect no. Maybe after another two quarters or so, we will have clear indicators the earnings should improve from there. That will be where the real rally should again resume. I am not saying it will be a fresh bull market or something. It will just be a continuation of this bull market but after this pause. That is how I am looking at the markets right now.

In fact one more thing worth highlighting here that I am not getting too worked up about are the global factors. Some people are concerned about an upcoming recession in the US. That also is not too worrisome from India perspective in my view. In any case, just because there is a slowdown that is impending, it does not mean that it necessarily has to convert into a full-blown recession. That is the way I am looking at it.

What is the sense you get about banking names? Do you think private banks in India are the best space to own despite the runup?

Yes I do think so. Banking as a sector has been like not just private banking but also public sector banks but again, one has to be very selective. Some of the larger ones, some of the market leaders are looking very good despite the run-up. For example, we are talking about something like Axis Bank, ICICI Bank. They have done phenomenally of late, but even then. if one can take a slightly longer term view -- one, one and a half, two years -- then many of them are looking very good. Even HDFC Bank looks superb. SBI is getting better. So things are improving very fast now.

Even then, when I am talking about SBI, actually the valuations are looking very attractive even after the recent run up and the way things are shaping up, their strength on CASA ratio, in retail or the pace of improvement of their loan book, all are indicating a very good future for the SBI stock from here.

Where within the midcaps are you finding an opportunity to invest?

AS a group, we still think one has to be very cautious about midcap and smallcap stocks that one is getting into. At the same time, I agree that from the next two-year perspective, some of these stocks are looking very interesting.

It is very important to start with a filter of corporate governance and of balance sheet especially for these stocks. Beyond that, when we are taking exposure into such names, we are also looking at the visibility on their earnings growth and also about their return ratio, how it has been in the last two, three years and if there is a scope for improvement from there.

Some of the names that we are looking at, are stocks like Bharat Electronics or something in the smallcap space like Hyderabad Industries Ltd or KEI Industries. Some of them are also linked to some sectors which may be driven by the government’s thrust on these sectors. For example, power has been one sector where the government has been really pushing a lot of emphasis and now that we are seeing further developments on the ground, some of these companies can do well. KEI Industries is one such company.

Similarly, the affordable housing segment HIL is very closely linked to that segment and the company is a very well run company, with very strong balance sheet and strong return ratios. Two years ago, they were struggling because of issues at the ground level because this sector itself was not doing too well but from here the next two, three years they are looking very interesting. But, one has to be very cautious of the kind of companies that one is taking exposure in.

What are your top IT bets?

Actually we are keeping away from IT. We feel that the stocks have done very well with good reasons but now they are looking a bit stretched, given the fact that the rupee is not showing signs of depreciation. In fact, it has appreciated and US and European markets are looking down in terms of their economic growth.

In terms of EPS growth, probably it is difficult to expect more than 10-15% and with the stocks trading around 20 times, if I have to take defensive exposure. I will rather look at consumer staples, some of FMCG stocks.